Tuesday December 19, 2006 - 11:28:55 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar recovery stalls
There is the potential for short-term dollar support close to 1.3180 unless the US housing data is particularly weak on Tuesday.
After weakening slightly after the current account data, the dollar strengthened to highs near 1.3050 against the Euro before weakening to 1.3100 later in US trading. The dollar held close to 1.3090 in early Europe on Tuesday with some signs that buying support was fading and the dollar subsequently weakened to 1.3165.
Liquidity levels will steadily decline over the next few days and this will increase the importance of market positioning with the Euro vulnerable to a correction, especially given the high number of speculative Euro positions. The currency was also unsettled by comments from French potential presidential candidate Sarkozy who stated that a strong Euro was a mistake. The dollar will, however, still find it difficult to secure further strong short-term support with investors looking to maintain Euro holdings before year-end. The German IFO index also rose to 108.7 in December from 106.8 which will underpin confidence in the Euro.
The US National home-building index weakened to 32 in November from 33 the previous month, countering market expectations of a slight improvement, and this undermined confidence in a housing-sector recovery. Housing starts data will be watched closely on Tuesday and a sharp fall would undermine dollar confidence while a firm report would be important in maintaining the more optimistic market stance on the economy.
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